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Avoid foreclosure nightmare
Updated: 3/18/2008 5:01:28 PM
By: Luke Ellis
We have seen and heard a lot about the housing market crisis in recent months.
Most reports have focused on the soaring number of foreclosures, due in many cases to adjustable rate mortgages (ARMs) that homeowner’s simply can’t pay. Some argue for government intervention to limit the lender’s ability to increase mortgage payments while others oppose the government bail-out and argue that homeowners must comply with the lending agreement.
With the likelihood of government intervention uncertain, most economic and housing experts predict even more foreclosures in 2008.
Sometimes unanticipated financial troubles -- losing a job, health issues and medical bills, death or divorce -- can affect a homeowner’s ability to make payments. For these homeowners, along with others that already struggle with their monthly payments, the prospect of ARMs that will increase monthly payment beyond the tipping point causes serious problems.
Losing a primary residence and any accrued equity in the property can be a financial nightmare. Unfortunately, the homeowner’s problems don’t end with mere loss of the property.
In some situations where the property is worth less than the total amount owed, the lender may pursue a deficiency judgment, which represents the difference between the re-sold price of the property and the amount owed to the lender.
So in addition to losing the property, the homeowner will also be required to pay the additional “deficiency” amount owed to the lender. Moreover, foreclosures and deficiency judgments can have negative affects on the homeowner’s credit score for years. This perpetuates a downward financial spiral by making it much more difficult to obtain a mortgage (or other loan) in the future.
The best way to prevent foreclosure is to not let it happen in the first place. Start to prepare now if your mortgage will increase in 2008 or other circumstances may place you in danger of not making the monthly payment.
Cut down on monthly expenses, create a tight budget and start saving an emergency mortgage fund that you can dip into if you get into a bind.
You can also contact a HUD-approved housing counseling agency at (800) 569-4287 for counseling to better organize your financial situation.